eBay backs off controversial PayPal-only plan in Australia

Regulators set to hold a hearing Monday

EBay Inc. has, for the moment, backed off a plan that would force sellers in Australia to only use PayPal, which eBay owns, as their online payment method.

The plan, which was set to go into effect last week, was scuttled by Australia's competition watchdog agency, which said eBay's plan could reduce competition in the online payments market and reduce consumer choice.

EBay has argued that using its PayPal method will cut down on fraud.

Although eBay's plan would allow sellers to accept cash on delivery or when items were picked up, it would not let them accept direct bank deposits, checks or money orders.

The new plan infuriated sellers who would have to pay fees to PayPal Australia Pty. in addition to the fees it pays to eBay. Those sellers, as well as buyers and competitors of both eBay and PayPal, made their concerns known to the Australian Competition and Consumer Commission (ACCC) and to eBay. Nearly 14,000 people have signed a petition to stop eBay from implementing its new payment policy.

The fees sellers are charged based on a percentage of their monthly sales. For example, sellers who make up to $5,000 in sales per month are charged 2.4% and sellers who have up to $15,000 in sales per month are charged 2%. Sellers who have more than $150,000 in sales per month are charged 1.1%.

EBay did not respond to numerous requests for comment on the Australian proposal. The company also could be not be reached to comment on whether it plans to institute a similar plan in the U.S.

On June 12, the ACCC issued a draft notice proposing to revoke eBay's immunity from legal action because of the anti-competitive nature of its new payment plan policy. The final decision won't be handed down until after a meeting Monday to discuss the matter.

EBay said it won't implement its new payment plan until the review process with the ACCC concludes. Under Australian law, the ACCC can grant companies immunity from legal action in situations involving some kinds of anti-competitive conduct that might otherwise breach that country's Trade Practices Act. EBay notified the ACCC that it was requesting immunity in April.

After receiving the notice from the ACCC, eBay released a statement saying that it had postponed implementation of its plan until July 15, after which time "the only payment methods sellers may offer on eBay.com.au will be PayPal and pay on pickup."

In the statement, eBay said, "The ACCC draft notice undermines online consumer protection, and eBay will continue to fight for safety benefits for consumers."

EBay said it was challenging the ACCC's draft notice and was disappointed that the agency was denying it the opportunity to provide consumers a "more secure way" to shop on eBay.com.au.

"Ebay intends to work with the ACCC and hopes to achieve a final outcome which has the safety and security of eBay's members as its paramount objective. eBay will delay the removal of other payment methods from the site until Tuesday, July 15," the company said.

In its draft proposal, the ACCC said that although eBay's plan might have some public benefit, it is likely to substantially lessen competition in the market in which PayPal operates and will result in reduced choice for consumers, higher transaction costs and reduced innovation in online payment systems.

"Therefore, the ACCC concludes that the substantial anti-competitive detriments outweigh any public benefits," the ACCC said in its draft proposal.

Whether or not such a plan would pass regulatory muster in the U.S. is not so cut and dried, said Marc Edelman, a law professor at New York Law School and a former antitrust lawyer.

Edelman said if eBay were to propose a similar plan in the U.S., federal antitrust regulators could get involved if they determined that eBay had a dominant position in the online auction market and if they felt it was using that advantage to develop a dominant position in the online transaction market through PayPal. By doing so, eBay would be restricting competition, he said.

But Edelman said eBay's case would hinge on whether eBay was the dominant player in the buying-and-selling market. Since there are other sites where people can sell merchandise, such as Craigslist, Edelman said he's unconvinced that eBay is the dominant player.

"If there are companies out there that compete with PayPal and provide the same services, and they feel that this would preclude them from having a real opportunity to compete in the market because eBay is requiring PayPal only, it will be interesting to see if they bring a challenge," he said.

Copyright © 2008 IDG Communications, Inc.

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